Saturday, 8 August 2015

Being Above Board

It's an interesting time in brewing. With Craft Beer seemingly going from strength to strength the appearance to the outside world is that it has to be a great thing to get into. In many ways it is, and living he dream can be very rewarding, but not without it's troubles.

It is true that the price of a pint in those contemporary craft beer bars is going up. The disparity between that and some more traditional pubs is disconcerting to some. Equally the fact that often keg beer is more expensive than cask also causes some angst.

This article is inspired by the news that Jarrow Brewery has recently had over 20,000 litres of beer seized by HMRC. It seems unclear exactly why. HMRC seem to state that they were brewing, and hinting that they were selling beer without a licence. The brewery simply state that beer has gone out of date because they can't sell it without a licence. Either way, it seems a drastic step to seize beer if there isn't a concern that underhand stuff is going on.

It continues to be a problem for brewers to get their beer to market. With an ever increasing number of breweries inevitably there is significant competition. At times that competition can manifest itself as eye-watering price cutting at wholesale. Off course, in a competitive capitalist economic system this is what we expect.

The unfortunate side effect of this is that there are going to be casualties. Equally, in desperate attempts to stay afloat, some might be tempted to moving a little to he wrong side of the law. I do hear reports from publicans about sales of beer "without paperwork" I am told that the way this is handled for the beer duty return is that the beer is officially not sold, but instead has been "destroyed".

To compound this situation HMRC have been somewhat silent for several years. When we first started brewing we got two visits from HMRC. Both went reasonably well and we were signed off as compliant. It was slightly nerve wracking, but I found the inspectors all very helpful. In discussing the destruction of beer I had some helpful tips from one very nice officer which basically run a long the lines that if it was the occasional cask then we should just get along and do it. If it was a whole gyle, a good number of casks, or a regular thing, we ought to let him know, just so as he could come along if he wished and witness the destruction.

We did that, on an odd occasion, when we were unhappy with a beer, and tipped a whole tank down the drain. Back then, around 2010, we were still only around 350 litres, 3.5hl, 8 firkins or 2 brewery barrels per brew. He was grateful I got in touch and said it was OK to just get on with the job of tipping it down the drain. Provided of course that United Utilities was happy that we had the correct discharge authorisation.

Since then this particular gent has moved on. Indeed, the last communication was that officers were being thinned out as a result of cutbacks caused by the economic situation. We even had one officer telling us that really, us little guys were not much of a concern as there were much bigger fish to fry. We were told we should just record all the beer we destroy and not worry about it.

So, you can see that this is a clear signal to go ahead and pretend that beer is being destroyed, when in fact it is being sold "without paperwork" for cash, no questions asked. Beer duty and VAT no doubt being evaded. I know quite a few business friends that think this is not only OK, but the only thing that can keep a business alive in a tough competitive time. After all, it'd be doing the beer drinker a service by getting the cost of their pint down.

But I do worry about it. In fact, the fear of HMRC coming and finding something is amiss and we'd get a great big tax bill we can't pay is something that fears me most in this business. We do not sell beer "for cash, without paperwork" Obviously we take cash, it is handy to avoid bank charges, and is perfectly legal, but we record it and issue an invoice. For a start, I want a new brewhouse. Hiding turnover and profit from the tax man also hides it from the bank manager. The banks want to see legal economic performance if they are going to lend for new shiny stainless steel.

Evading the tax man is something that I particularly find offensive. Yes, I think we pay too much tax, but we are all a liberty to vote for the politicians that decide what is going to be taxed, and how much tax is to be charged. We are also all at liberty to lobby who ever we like, demonstrate legally or complain about taxation on our blogs. However, once the taxation system is set, we all have a duty to put into the coffers what is due.

Now, as there are more and more breweries, there is more and more cut throat competition and more and more breweries desperate to make their dream work. Many of us in the industry are worried that this is going too far, and that the price of cask beer at wholesale is becoming increasingly unsustainably cheap.

What I do know is that as the economic situation continues to improve HMRC are again being funded a little better. With the increasing number of breweries, and evidence becoming clear that micro-breweries are in fact now contributing to the avoidance of duty, make no doubt about it HMRC will again be knocking on our doors.

HMRC are also looking at the whole supply chain. Since last year it has been a legal requirement to ensure that we are confident that anyone we sell beer to is adhering with the law. In the New Year HMRC will require every wholesaler to register. In some ways all of this puts an ever increasing burden on those of us who are already trying very hard to ensure we are above board.

Luckily, SIBA are doing quite a lot to support us. They have various tools available on the website in the members area.

Despite this I expect over the next couple of years some breweries will only able to keep trading by avoiding some beer duty and VAT. These breweries are going to find it difficult. I wonder if Jarrow is the start of the whole pack of cards tumbling? Certainly, those breweries who already have a strong pricing structure, defended by good marketing, strong PR message, quality beer and adherence to the law are much more likely to survive.

3 comments:

There is a lot more to the story, in a nutshell however Jarrow Brewery no longer exists, it went into liquidation a few weeks ago:http://www.chroniclelive.co.uk/news/north-east-news/jarrow-brewery-calls-liquidators-after-9059806A "new" brewery called Jarrow Breweries has never had a brewing licence (yet). This second link is a revised version of the story:http://www.shieldsgazette.com/news/crime/brewery-apologises-for-inconvenience-after-20-000-litres-of-beer-seized-by-customs-officers-1-7396382

Fascinating stuff - the tax geek in me had been wondering how, if at all, HMRC had been keeping up with the explosion of breweries. It would be interesting to see tax take segregated by size of brewery - I suspect up to a certain point it just wasn't value for money for HMRC to audit anyone other than the big six/five/four/three as the tax take from everyone else combined would have been a fraction of a percent. Indeed, this may still be the case, but as your post suggests this isn't really fair at the bottom if some businesses are complying and some aren't.

I get offered "cash" fairly often with an implication that a) they're doing me a favour, and b) they can expect a big discount. (In actual fact I bloody hate cash.)

Which in my situation make less sense given all I've got to be dodgy on is VAT and, well, no-thanks, I'm not into tax fraud. But it makes me wonder how often these pubs get a positive response... I can't imagine there are many distribs who'd go for it, given marginality of the return. But presumably they're used to a positive response sometimes or the situation would not arise, and my assumption is that they get this response from certain breweries.

Of course these are often customers you can identify by looking at their bar lineup... and how many 3-for-£100 "specials" they feature. They're usually not customers in the end in fact, or not for very long.

AWRS is going to be an annoyance. Like I need more overhead. Like small breweries need more overhead. How much difference will it make at our end of the industry w.r.t this sort of tax fraud? Bugger all I suspect.

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